On June 17, the Bank of Japan maintained ultra-low interest rates. (Image credit: Getty Images)
[See China, June 17, 2022](See Chinese reporter Wen Long compiled report) On June 17, the Bank of Japan maintained ultra-low interest rates, bucking the global monetary tightening wave, to show its determination to focus on supporting the economic recovery.
The yen fell and bond yields fell following the decision, which was widely expected but disappointed some in the market, who speculated the Bank of Japan might cave to market forces and adjust its monetary policy.
The Bank of Japan said it must “closely monitor” the possible impact of currency movements on the economy.
Bank of Japan Governor Haruhiko Kuroda told a news conference: “The recent rapid decline in the yen has added to the uncertainty of the outlook and made it difficult for companies to formulate business plans. Therefore, it is not good for the economy and not desirable.”
At the two-day policy meeting that ended on the 17th, the Bank of Japan maintained its short-term interest rate target of -0.1% by a vote of 8 to 1, and promised to guide the 10-year government bond yield to around 0%.
The BOJ also stuck to its guidance of keeping interest rates at current or lower levels and ramped up plans to buy unlimited 10-year government bonds.
“Raising interest rates or tightening monetary policy now will add further downward pressure on an economy that is recovering from the pain of the COVID-19 pandemic,” Kuroda said, ignoring recent interest rate hikes in many countries.
He also said the BOJ would not tolerate 10-year bond yields above the 0.25 percent ceiling despite pressure from rising global yields.
“There was speculation that the BOJ might adjust policy to deal with currency fluctuations, but the central bank’s answer was no,” Shotaro Kugo, an economist at Daiwa Research, told Reuters.
Kuroda’s comments underscore the BOJ’s status as the world‘s last major dovish central bank, with its peers aggressively tightening monetary policy to stem a spike in inflation.
European central banks raised rates on June 16 after the Federal Reserve raised rates by 75 basis points, some of which stunned the market.
Widening policy differences between Japan and the rest of the world have pushed the yen to a 24-year low against the dollar, which could push up already-rising import costs and cool consumption.
Japan’s government and central bank have escalated their warnings, including a joint statement last week indicating they were prepared to enter currency markets if necessary if the yen fell sharply.
“We must carefully observe the impact that financial and currency market movements may have on the Japanese economy and prices,” the Bank of Japan said on Tuesday, including the first reference to the exchange rate in a policy statement in a decade.
However, concerns about a weaker yen have not stopped the Bank of Japan from defending the ceiling of its 10-year yield target by ramping up bond purchases.
In effect, the Bank of Japan is caught in a dilemma. With inflation in Japan well below that of Western economies, its focus is on low interest rates to support a still-weak economy. But the dovish policy triggered a slump in the yen, hurting an economy that relies heavily on imports of fuel and raw materials.
With Kuroda ruling out a rate hike, the government may have an onus to fend off further yen declines, including intervening in the market to support the yen.
Analysts, however, are skeptical that Tokyo can get the consent of Washington and other G7 members to intervene jointly, or whether it will work alone.
Responsible editor: Xin He Source: look at China
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